Chances are you want to pay off your home loan sooner rather than later. One of the simplest ways to cut years off your home loan is to make fortnightly repayments.
Other hacks include switching from IO to P&I early, making extra repayments, getting paid into an offset account, and switching to a lower interest rate. Here we'll explain how you can make these hacks work for you.
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A trick that can shave years off your home loan is to make fortnightly repayments instead of monthly repayments. Divide the amount of your monthly repayment by 2 and repay that amount on the same day every fortnight.
Here's the math: there are 12 months in a year, but 26 fortnights each year. By making fortnightly repayments you’ll pay the equivalent of an extra month each year!
And that's not the only reason why switching to fortnightly repayments is a good idea. Lenders typically calculate interest daily, so making home loan repayments fortnightly instead of monthly reduces the amount of compounding interest you would normally pay.
Find out what your new repayments might be in seconds.
If your home loan interest rate doesn't start with a 2, then you could do better! A recent Lendi study found that borrowers who refinanced using Lendi are saving on average about $2,832 in interest over the next year on their home loans as a result of an interest rate reduction of 89 basis points.**
Also, if you switch to a lower rate but maintain your current repayment amount, you'll be on course to pay your loan off early. You can find out if you're eligible for a lower rate here.
Rounding up your repayment amount gives you a figure that is easier to remember and means you’ll be making extra repayments without even thinking about it. If you have to pay $1,800 each month, try to pay $2,000.
If you can afford to pay an extra $200 each month, it will reduce the interest your lender charges you and you'll be debt-free sooner. Even if you can only afford an extra $20 or $50 each month, every dollar counts and it can still make a difference.
Try getting into the habit of saving coins and $5 notes. This small change will grow over time and can then be used for additional repayments, or can be kept as an emergency fund in case your circumstances change unexpectedly.
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If used effectively, an offset account can help you save thousands of dollars in interest. Say you owe $200,000 towards your home loan and have $10,000 in an offset account, the $10,000 will be ‘offset’ against the amount payable on your home loan and you will only be charged interest on $190,000. If you're paying less in interest you should try to make larger repayments to pay your home loan off early.
Find out how much you could save each month.
A redraw facility attached to your home loan also reduces the amount of interest you pay and allows you to access funds from any additional repayments you've made. The benefits of a redraw facility are that you can make extra repayments more frequently without incurring a high fee for doing so, and you have the security of being able to withdraw these funds freely should you need them.
One easy way to reduce the amount of interest you pay is to get your salary paid directly into your offset account. You can use this as a daily transactional account and access your money as frequently as you wish, but each day that money sits in the account means that you've saved a little in interest.
Find out how much you could save with our offset account calculator.
If you are able to, there are huge benefits to making additional repayments. Each extra repayment reduces the principal amount that you owe. Lowering this outstanding amount will, in turn, mean that the interest your lender charges will be lower.
If you receive a lump sum payment, such as tax back, an inheritance or a work bonus, consider paying all or a portion of this towards your home loan to reduce the principal amount owed. Any substantial repayments can go a long way to reducing the term of your home loan.
Can't make extra repayments on your loan? Chat with a Home Loan Specialist on 1300 323 181 for free expert advice.
Lately, we've seen considerably lower Principal & Interest rates offered in Australia meaning that many Australians are able to switch from IO to P&I repayments without breaking the bank. If you can afford to make the switch to P&I, the sooner you do will mean that you'll pay less interest down the line, saving yourself a bundle of cash, and you can pay off your loan early.
How much will your P&I repayments be? Chat to a Home Loan Specialist for free expert advice.
Chat with a Home Loan Specialist on 1300 323 181 for free expert advice.
The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
** The estimated average future interest savings is calculated as at 15 April 2020 based on Lendi assisting customers into new loans with an average interest rate reduction of 0.89% for the 11 months prior, and assuming a median loan term of 26 years on both the old and new loan and all monthly principal and interest repayments will be made on time. Any future savings figures are estimated averages only, and do not take into account any product features or fees (including refinancing or break costs). Your savings will be different.
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